Status of Liability of service tax for stock broker

[sunil mehta]

Dear Sir, Now w.e.f.10/9/04.defn. of stock broker includes subbroker.consequentely,subbrokerage recd.from main stock broker is taxable.But from f.y.2004-05 SEBI introduced 'direct billing system',wherby main broker raises bill to a customer.Previously Main broker raises bill on subbroker and subbroker raised on client.Now,payments are made by clients directly in favour of main broker.Main broker gives some part of his earnings to subbroker at the month end. Query:1)what is the status quo liability of subbroker under s.tax?(keeping in mind that there is direct billing system from main to subbroker as per sebi rules) 2)suppose the main broker has paid the ser.tax liability on portion of 'subbrokerage share' at his end,whether such portion of subbrokerage income will be included in calculating 4 lacs turnoverof subbroker? Can it be argued that with introduction of 'direct billing system' subbroker does not come under purview of taxable services,therefore such income should be kept out of t/o limit of 4 lacs ? Note:The above query stands on provisions existing prior to 1/4/06. s.mehta

[Surender Gupta]

In this query the main issue is liability of service upon sub broker. Sub borker is getting commission from the man broker and liable to service tax accordingly. For the purpose of calculating limit of Rs. 4 lakhs, both are independent. What ever commission is being received by the main broker from the client is total turnover. The commission payable to sub borker is not deductible at all. However, the main broker can avail Cenvat Credit against service tax paid by the sub broker.

AI Summary

Service tax liability for sub-brokers: sub-broker commissions are taxable and main broker can claim Cenvat Credit. Sub-broker commissions are taxable services and the sub-broker is liable to service tax on commissions received. Receipts paid by clients to the main broker do not negate the sub-broker's liability; the main broker's total receipt from clients is its turnover and amounts paid to sub-brokers are not deductible from that turnover. The main broker may claim Cenvat Credit for service tax paid by the sub-broker on the sub-brokerage share. Each intermediary is treated as an independent taxable person for turnover and liability purposes.